House Marks Tax Day By Passing Taxpayer Protection Measure

Updated:
Tuesday, April 17, 2007 5:57 PM EDT

WASHINGTON (AP) _ The House marked Tax Day on Tuesday by approving new protections against some of the modern-day dangers facing taxpayers, including identity theft, deceptive Web sites and loan sharks.

The Taxpayer Protection Act, passed 407-7, also makes it easier for taxpayers to retrieve property lost as a result of a wrongful Internal Revenue Service levy and directs the IRS to notify lower-income people that they qualify for the Earned Income Tax Credit.

``We must protect taxpayers from being victims of fraudulent tax schemes, misleading Web sites and predatory refund loans,'' said Rep. John Lewis, D-Ga.

The bill, which requires Senate action, directs the IRS to notify a taxpayer when there is evidence of unauthorized use of his or a dependent's identity. Last week the Senate Finance Committee heard from a man, now serving eight years in prison for felony fraud, who related how easy it had been to collect more than $40,000 in tax refunds using stolen identity information.

It clarifies rules prohibiting the use of domain names, such as IRS.org instead of the government's IRS.gov, that could be used to deceive taxpayers.

The measure also restricts the IRS in providing information to lenders offering refund anticipation loans that are deemed predatory. Some tax preparers have come under fire for charging high interest for loans, often to low-income people, in anticipation of tax refunds.

Rep. Jim Ramstad, R-Minn., said he hoped that denying lenders information on debt indicators wouldn't make the problem worse by prompting lenders to increase interest rates and fees.

Ramstad, like Lewis a senior member of the Ways and Means Committee, said he was pleased the bill contained language to combat fraudulent returns filed by inmates in federal prisons.

Deputy Treasury Inspector General for Tax Administration Michael Phillips said last week that in 2005 there were 20,000 fraudulent prisoner returns claiming more than $834 million.

Under the bill, the IRS is directed to conduct further outreach to notify people that they are eligible for the Earned Income Tax Credit, which refunds payroll and income taxes to low-income people.

The Joint Economic Committee, headed by Sen. Charles Schumer, D-N.Y., issued a report this week concluding that in 2004 eligible people missed out on $8 billion by not filing for the EITC. It said 22.3 million people received $40 billion, an average credit of $1,797, from the EITC program that year.